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Seoul goes all out to cushion economic impact of COVID-19
  • By Lee Han-soo
  • Published 2020.03.16 12:06
  • Updated 2020.03.16 18:28
  • comments 0

The new coronavirus is adversely affecting the Korean economy now, and its impacts will be far broader and longer than those of previous epidemics, economic analysts here said on Monday.

Last week, when the U.S. stock markets had to halt trading no fewer than three times, the Seoul bourse also took similar steps as investor sentiment plummeted.

U.S. President Donald Trump's address last Thursday failed to calm investors over concerns about the recession brought on by the virus outbreak. Analysts here said the lack of clarity from President Trump's address, which called for a travel ban from Europe except for the U.K. for 30 days but failed to provide a comprehensive economic rescue package, has caused further panic in the local market.

Following the U.S. Fed’s move to lower its base rate to near zero, the Bank of Korea is also moving to reduce its rate by holding an extraordinary meeting of its Monetary Policy Board.

“The ongoing economic turmoil caused by COVID-19 is expected to have a greater impact than past infectious disease,” the BOK said in its report submitted to the National Assembly. "Also, as China is currently the world's largest trading and tourism market as well as plays a critical role in the global supply chain, its trouble may come as a bigger impact."

Korea’s economic growth is likely to fall further before it begins to rebound, provided the spread of the contagious disease slows down in months to come," the report said. The central bank has lowered its growth estimate for the nation's economy to 2.1 percent from the previous 2.3 percent, which private economists say is too optimistic, however.

As if it was conscious of such criticism, the BOK also said things could prove to be worse.

"Recently, COVID-19 has spread to all continents, including Europe," it said. "Therefore, we need to monitor its spread more closely, and get ready to take action at the slightest chance of the pandemic aggravating."

In its latest rate-setting meeting, the central bank decided to hold the key rate steady at 1.25 percent on Feb. 27, a level it has maintained since last October.

A street in Myeongdong, a famous tourist destination in downtown Seoul, looks almost deserted last Friday. COVID-19 has hit shop owners there and other areas of the capital city hard, with some stores closed down indefinitely amid a sharp decline in customers.

Now that the U.S. Fed lowered its rate to a near-zero at the behest of President Trump, it will be only a matter of time for the Korean central bank to do so, financial market watchers said.

The BOK’s monetary policy board will likely advance its rate-setting meeting, initially scheduled for April 9, by a few weeks.

Aside from the financial policy, the Moon Jae-in administration is also actively dealing with economic shocks by formulating the extra budget of 11.7 trillion won ($9.8 billion) and seeking to add more.

"It is more urgent than ever to reduce shocks spawning from COVID-19 on people's livelihoods and the economy and actively deal with economic downside risks," Prime Minister Chung Se-kyun told the National Assembly on Friday. "If we do not respond now, the economic recovery would be delayed, possibly causing higher costs later."

According to reports, after passing through 17 standing committees of the National Assembly, the supplementary budget bill has increased by an additional 6 trillion won.

The extra is the fourth biggest supplementary budget in the nation’s history.

President Moon Jae-in called for “unprecedented” policy measures to counter the economic fallout of COVID-19. Moon, who received an emergency briefing, said, "We can compare it with past cases, because it is a special situation different from then, and we should do unprecedented things," Moon said.

The president added that the economy team shouldn't limit policy steps to previous examples.

Economic officials said they would spend 75 percent of the 11.7 trillion won supplementary budget on various areas concerning the more efficient fight against COVID-19 and help ease the financial difficulties of small businesses and working families. Such areas include upgrading the nation's quarantine system (2.3 trillion won), helping small business owners and enterprises (2.4 trillion won), securing public livelihood and employment (3 trillion won), and supporting job security and school quarantine in COVID-19 affected areas (800 billion won).

The budget is expected to pass the Assembly on Tuesday.


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